Post by
JohnJBond on Jan 25, 2024 1:41pm
Guidance and Presentation thoughts
This morning OBE published their official 2024 guidance. They then held a presentation in which they gave prepared remarks, and then answered questions.
About 18 minutes of prepared remarks, followed by about 30 minutes of answering questions. I'm not privy to all the questions that may of been presented, but it feels like all questions were answered. When I say all, I mean shareholders, analysts, and anyone else who may of chosen to ask.
What stood out the most, is not written in their NR, or included in their prepared remarks.
Its an overall feeling that you can talk to this company, and they will answer openly and authentically.
There is a feeling of openness, accessability and transparency, that is tremendously valuable. As I'm writing now, I'm struggling to express in words, just how important, rare, useful and ultimately valuable, this is.
Investors trust management with their money. In most other cases, they have to rely on the opinion of intermediaries to inspire the confidence they need to part with their money. They may be financial advisors, TV personalities, etc. In OBE's case they can hear it directly from the horse's mouth.
If you are reading this, then you too are seeking an opinion to influence your own. I suggest you visit OBE's web site, find the replay of the above, and listen to it yourself. Maybe next time, even ask a question yourself. Its within OBE's answers to these questions where much of the most interesting information is found. It becomes a resourse for all those who choose to listen down the road.
Now on to some of the parts that stood out to me.
Growth Over the next 12 Months
In the last presentation Q&A, they mentioned a 2024 exit of 38,000 boe. That is a volume and date prediction. OBE doesn't give exit numbers in their written forecasts - maybe because predicting the production on Dec 31 of a given year, is in reality - impossible.
In today's NR, they bracketed the above, buy saying production will increase to over 37,000 boe by year end, and to about 40,000 in Q1/25.
ie, they said the same thing, in a more reasonable way. Around the end of this year, OBE will be producing about 38,000 boe/day, and in Q1/25 (about a yearish from now), OBE will be at about 40,000 BOE.
32,750 to 40,000 boe, that is a big, and impressive jump!
PROP's Future
OBE is developing its Peace River heavy oil land by using miltilatteral cold flow. Today they pointed out this method extracts "low single digits" of the oil in place. ie, just a few percent of what is there, is being removed. Those few percentage points, are enough to move OBE from a 30,000 boe ish company to 50,000 boe by 2026. It begs the question - what if they could increase the recovery?
Its a significant question because there are numerous ways of enhancing recovery, some of which are likely to work.
Once you have the roads, facilities, pads, tanks, pipes etc in place - the useful life of that investment can be extended by enhanced recovery methods like water flood, or polymer flood, or thermal recovery etc. If the oil price is right, these methods are economic.
This answers the question - what next? What happens to OBE when it gets to 50,000 boe in 2026? Based on the above, OBE may be able to continue organically at 50,000 for many many years.
The Share Buyback
Given all the money OBE is spending on growth (5 drill rigs currently drilling), I had a feeling they may of run out of money for share buy backs.
That is not the case. Today OBE said they have been actively buying back shares in January.
They also said they expect to continue buying back shares through 2024.
Drilling Activity and Cost
OBE currently has 5 drill rigs drilling. Today they said this will increase to 6 by the end of the year!
They indicated drilling costs have declined (lower price of diesel, steal, drilling rates etc).
Interestingly they also said due to reduced overall drilling activity, they are getting better quality drill rig crews, which means they are drilling faster. ie improved drilling efficiency and lower cost.
Cash Flow Sensitivity
Today they announced their cash flow sensitivity to a $1 change in WTI has increased to $9.8. Ie, every time WTI goes up $10, OBE's cash flow increases by just under $100 million!
Thats great - but it gets better when you look at it from a per share point of view.
OBE ended 2023 with 77.6 million shares (down from about 82 million at the start of 2023)
$98 million in extra Cash, divided by 77.6 million shares = $1.26 more cash flow per share!
Try that calcuation on alternative investments, like Baytex, or CPG or WCP etc, and the results are nothing like that.
Then try the above calculation with 70 million shares and see what you get! I picked 70 as a random example, simply because OBE's share buyback continues.
Viking Wells
OBE said the batch of new Viking wells they drilled in Q4 are coming online this week (maybe next week - I can't remember which as I write this). Either way, Viking prodution is coming on just as oil prices start to improve!
They also said they can add additional Viking wells whenever they want. Translation, if oil prices rise, expect another batch of Viking wells to add 1000-2000 barrels in short order.
They did not include any Viking wells in todays 2024 guidance because they drilled this year's batch early (last quarter). ie, the absence of Viking wells from today's 2024 guidance DOES NOT mean the last batch disappointed.
As a share holder, I'm very happy with OBE's plan, progress, and most of all, their openness and authenticity.